Posted
by
Soulskill
on Saturday April 25, 2009 @12:20PM
from the all-about-the-benjamins dept.

Hugh Pickens writes "Saul Hansell of the NY Times has an interesting post analyzing AT&T's earnings report and highlighting the enormous stakes involved in the renewal of its exclusive contract to distribute Apple's iPhone in the United States. Hansell does some rough calculations: 'If the average iPhone customer brings in $90 a month, or $1,080 a year in revenue, and the operating profit margin stays constant at 26 percent, that means an iPhone customer represents at least $561 in operating profit over a two-year contract,' says Hansell. 'Put another way, if the company gets 2.5 million new customers a year because of its iPhone exclusivity, the deal represents at least $700 million a year in operating profits — profits that it could lose if Verizon sold the iPhone, too.' With those sort of numbers, AT&T has every reason to make Apple an offer it can't refuse to keep its exclusive deal for another few years. Of course, the incentives for Verizon are presumably the mirror image, so expect Verizon to come to Cupertino, checkbook in hand, to see what sort of deal they can make. 'The benefit of somewhat more iPhone sales from wide distribution is likely to be swamped by a huge bid from AT&T to keep exclusivity, and an equally high bid from Verizon to win some (or maybe even all) of the business for itself.'"

Another effect is that Apple's competitors in the smartphone market will throw more money at dethroning them (either by improving their products or dumping money into advertising). But of course, success always breeds competition (well, at least ideally). In the end this should benefit us all by resulting in better smartphone services without 100% profit margins, but perhaps not since the psychology of fads is that only 1 thing can be "it."

3) Mindshare is king. If there were a Verizon iPhone, there would be more Apple iPhone mindshare. I hated to leave Verizon's better network and service for AT&T's suckyness, but I did it anyways. Lower that barrier, and many more people like me would have an iPhone. In the long run mindshare = more profits!

I don't know. I just switched from Verizon to an iPhone and everyone I talk to tells me that my iPhone sounds clearer. And my house is in a Verizon dead-zone (I live about 10 miles outside of Boston -- there should be no dead zones that close to such a large technology based city).

Still have not dealt with customer service, but its not like Verizon's service was particularly great. And it was also from a big telco.

Because Verizon (nee Bell Atlantic) is so much less of a big telco then the current AT&T (nee Southwest Bell)? Both are spinoffs of Ma Bell who gobbled up as many of their smaller siblings as the could.

3) Mindshare is king. If there were a Verizon iPhone, there would be more Apple iPhone mindshare. I hated to leave Verizon's better network and service for AT&T's suckyness, but I did it anyways. Lower that barrier, and many more people like me would have an iPhone. In the long run mindshare = more profits!

Experiences with cell phone companies are so varied, it's impossible to draw any conclusions approaching 1) or 2)... if anything, all you can come up with is "All cell phone companies suck."

For every "AT&T's network sucks" you'll have a "Verizon's network sucks", and the same for customer service.

As an example, my wife and I both defected from Verizon. I've been with AT&T for 6-7 years, and her since the iPhone 3G launched. She left Verizon because of several experiences with rude customer service, and spotty coverage.

The current AT&T is really SBC, which is the same as Verzion: one of the RBOCs created by breaking up the old AT&T. Neither one has any more or less history as a monopolistic big telco than the other because they're both cut from the same block.

They might actually have to deliver that iPhone you see in the commercials. I'd love to trade with THAT iPhone but if they used mine in the commercials the commercial would have to end before it brought Slashdot up on the edge network...

That is not the experience I have seen. In fact lots of people I know refuse to go through the hassle of switching over to wifi when available because they are perfectly happy with the 3G speeds.
Maybe certain areas are different but I have never experienced what you are describing.

when i first got the 3G network performance was bad. Over the last six month AT&T has brought it almost to the point where the iphone processor is the limiting factor. With rendering times almost equal between 3G and wi-fi.

What really gets me though is verizon can never have the iphone. Ever. It would have to be made exclusively for verizon customers. As Verizon uses phone technology that is incompatible with the majority of the world. GSM may not be the best solution, however it does have the largest user base. When will people understand this?

If this ever comes to pass, and Apple releases an LTE-compatible iPhone, the technology roadblock should vanish.

Not necessarily. Cellular carriers don't flip a switch and make their network technologies change - it happens market by market, tower by tower. Until Verizon upgrades 100% of their nationwide network to LTE - which even optimistically takes several years and costs tens of billions of dollars - then large parts of their network will continue to be CDMA, which is incompatible with the GSM-based iPhone. So even if Verizon could get access to a future LTE-based iPhone, it wouldn't work on large parts of their

Yeah, it is. With 4G you are dealing with dramatically larger capacity so your whole infrastructure needs an overhaul.

So of course you start with the equipment in each tower (which is pretty expensive). You also have to upgrade the backhaul circuits attached to each and every one of those thousands of towers from copper T1s or microwave to fiber/Metro Ethernet etc. to handle the much larger throughputs that LTE supports. On top of that, throw in all the heavy-duty routers, management and QoS gear for the co

LTE alone is nothing. The point of LTE is that it provides next gen data bearer with voice & sms handover to (GSM) 2G/3G. You will never see the same coverage for LTE, and there's no point in providing it if you can't steer voice to 3G/2G. They could do that for CDMA also, but likely not as soon an easily.

What really gets me though is verizon can never have the iphone. Ever. It would have to be made exclusively for verizon customers. As Verizon uses phone technology that is incompatible with the majority of the world.

I would say that Apple, not Verizon, is the major reason that Verizon still won't get the iPhone for awhile.

Apple has a history of only wanting to support one option for its customers, for unknown reasons. Most likely because they can reduce testing and development strain while still having a high quality product. I think Apple would only want to make one version of the iPhone because it's just easier.

Not to say that Apple couldn't do it. They just won't. Just like we've seen them leave out simple featu

Only partially correct, VZW is CDMA, as is Sprint PCS, Cricket & (IIRC) MetroPCS. True, CDMA is primarily a US technology, Japan uses it & I'm too lazy to look , but there are other countries that do too. I work for a CDMA carrier, but my posts do not necessarily reflect opinions of my employer, blah blah:)

People know Verizon uses CDMA. What you don't realize is that the applications, or any host-level networking protocol, doesn't care what technology it uses. Converting GSM to CDMA involves plopping a new chip in, and rewriting the data link and networking wrappers used by the OS. Properly written APIs won't even be aware of what technology is used. Blackberry has GSM and CDMA versions of phones, so it's already being done.

And it's not like Apple hates CDMA. They went to Verizon before they went to Appl

it's not like Apple hates CDMA. They went to Verizon before they went to Apple, and Verizon walked away

I think you hit on the real reason Apple won't sell iPhones to Verizon right there. Steve Jobs doesn't appreciate being snubbed and has a well-known penchant for holding long grudges about things like that.

And lest anyone think I'm an Apple-hater, I own three Macs and two iPhones (along with PCs running XP and Ubuntu).

It is a huge hassle to develop two versions of the phone. Blackberry does this to ensure complete market penetration, and to ensure that agencies don't have to move to a different phone because of contractual agreements with a telco. Apple does not need that. Apple is pushed to consumers, and is trendy enough that people with switch carriers if they really want to use one.

Both Sprint and Verizon use CDMA. Also, their networks are top-notch. I've been on Sprint for a few years now and their coverage is amazing. I'd love for the iPhone to come to Sprint.

So if Apple developed a CDMA iPhone, they'd gain compatibility with TWO big carriers. The additional sales they'd get from current Sprint and Verizon customers (like me!) who don't want to change providers will probably eclipse the development costs by a vast amount.

As Verizon uses phone technology that is incompatible with the majority of the world.

besides just that, verizon has this stupid UI that severely limits the capability people have on the phone. i can't imagine they'd let the iphone's os run as is. they'll more likely than not severely limit it like all their other phones and effectively make the iphone useless.

Apple doesn't have the money to develop two separate phone models with different technologies

You're kidding, right? Didn't Apple just report an 18% profit growth last quarter? Do you have any idea how much cash on hand Apple has as a corporation?

Those cash reserves are a big part of why Apple stock has held so strong these past years. In 2001 I was at a dinner with the CFO of Apple, and I was at the same table as him. He started talking about their cash position and the size of that position floored me.

You're kidding, right? Didn't Apple just report an 18% profit growth last quarter? Do you have any idea how much cash on hand Apple has as a corporation?

umm, yes, yes he was.

Selective quoting + inability to detect sarcasm == win?

Because Apple doesn't have the money to develop two separate phone models with different technologies, or, better yet, put both technologies in the same phone and basically enable everyone to have service in just about every square mile of land in every developed country? Yeah, right.

there yah go:)

Oh, and my 2 cents?

I dislike both Verizon and AT&T, and the iPhone (well, specifically the price point for the data plans, which really boils down to the providers again) even more. Of course AT&T wants to keep the iPhone as an exclusive, it is a giant friken cash cow.

You're lucky. Really. I want to get an Android to use in Canada. None of the carriers here support it. But I can buy the developer version. And I can buy a sim from one of the GSM carriers up here and plug it into the phone and it will work. Except the 3G. Because for some reason the carriers here elected to use a 3G frequency incompatible with both the US and Europe. Grrrrrr.....

Verizon has already announced that they will no longer be locking out features, specifically GPS capability, on new phones. It took a while but they finally learned.
Speaking of Geocaching, the iPhone's "GPS" sucks so much you have to have another GPS device anyway. Yes, I'm speaking from experience.

Speaking of Geocaching, the iPhone's "GPS" sucks so much you have to have another GPS device anyway. Yes, I'm speaking from experience.

I can confirm this. iPhone's GPS certainly doesn't work indoors, but my impression is that even the leaves of trees are enough to stop the GPS signal. It's also way too slow to use the iPhone as a TomTom replacement.

I was far more pissed off with Verizon's device locks that prevented me from using my own mp3s as ringtones. If I wanted them, I'd have to buy the file and pay for the airtime off Vcast. I'd have doubts about going to Verizon even if they gave me an iPhone. Totally free.

Of course.. having been a Cingular customer, I'm certain I wouldn't go to ATT for an iPhone either. So.. android phones, I'm looking at you.

If Verizon tried to pull something like that, i'm pretty sure Apple would just renew their agreement with AT&T.

Verizon WILL try to pull exactly that - they've demonstrated pretty much identical behavior to this many times. I left Verizon for T-Mobile because of it - when Verizon finally released its first Bluetooth phone, it disabled basic sync between a person's phone and his/her computer. I really wonder how many non-techie Verizon are blissfully unaware of some great features their Bluetooth phones would be capable of if only Verizon didn't disable them?

Now what I'd really like to see is the iPhone on T-Mobile's network...

I left Verizon for T-Mobile because of it - when Verizon finally released its first Bluetooth phone, it disabled basic sync between a person's phone and his/her computer. I really wonder how many non-techie Verizon are blissfully unaware of some great features their Bluetooth phones would be capable of if only Verizon didn't disable them?

Sprint does the same thing with all of their phones. You can take pictures and play MP3's, but you have (or they want you) to use their expensive web service to download music. If you want to actually print a picture that you took with your camera, you have to send the photo to Sprint's site (for a fee) and then go to the web and print it there.
Like an earlier poster said, Verizon, Time Warner, Cox, Sprint do not want to be dumb data pipes. They want to control the content as well.

Only the 2G iPhone. The 3G iPhone is incompatible with T-Mobile's 3G network.

I use a 2G iPhone with my T-Mobile service. They won't officially support it, but it does work 99% (the 1% being visual voicemail, which is an AT&T exclusive feature, AFAICT. Plain ol' voice mail continues to work as you expect.)

The biggest example is the in-store-activation-only fiasco with the 3G launch. Compare and contrast that experience versus the original iPhone; when you could go in, plonk down your money, get the hell out of there, go home, and activate at your leisure. That idiocy alone pretty much guarantees that as soon as the iPhone is available on another carrier, I'll be dropping AT&T.

HAH! That's why I detest Verizon and wouldn't mind trying AT&T. Verizon expects you to buy your own pictures back from them. I've [still] got one of those LG phones where Verizon forgot to turn off OBEX/OPP and I declined their generous offer for a free firmware upgrade.

I was just thinking - I want an iphone. And, I want the verizon network.

Then you reminded me of something. I had (when it was good) a v3 from AT+T. Hackable goodness, everything there. Then we switched to a v3 from VZW. What happened to my phone? What's up with this horrible interface? Where are all the features? This isn't a v3, it's an upsell device with a good network and an ugly interface.

ATT's network is improving in this area and they just bought a local GSM provider, so I don't think it w

In my country there doesn't exist a word for tethering - if you have Internet access in your phone, everyone takes it for granted that you will be using that access from your computer rather than from your phone. That's why I wondered what the hell tethering is, and when I learned I was horrified.

On the other hand, 70% of WiFi access points in public places like galleries belong to one of the two big operators, and they charge batshit insane prices (~$3 for 1 hour

I thought Verizon couldn't use the iPhone because it's GSM and Verizon uses CDMA. There isn't a CDMA version marketed anywhere in the world, they're all GSM. The only options in the US are AT&T and T-Mobile, any bid from any of the other companies would pretty much require them to front the cost of making a CDMA version of the phone since it'd only sell in the US.

Apple said from the beginning it did not want to use CDMA because of its limited range to only North America. GSM is used around the world. Verizon Wireless execs have recently said (check out macrumors and appleinsider.com for the specifics) they don't expect to make an offer to carry iPhones until they roll out 4G LTE technology (aka the next GSM version), the same 4G technology ATT is using.

Apple went to Verizon first. They laughed them out of the room when Apple told them the terms.

Verizon does know one thing people are fickle. The terms Apple was asking for was too big of a risk at the time. They were just finishing ridding out the razr wave. Which was GSM first... Many of the phones that Verizon has are not exactly cutting edge phones. But they are tried and true phones. Meaning the return rates/attach rates/costs are understood up front. The only thing semi cutting edge about Veriz

have you ever used a verizon razr and compared it to a at&t (then cingular) razr?

The verizon razr is a piece of crap. The phone is physically different (apparently it breaks more often and IMHO the slight keyboard layout change is awful). The motorola software is replaced with the shitty verizon interface that they put on all of their phones. The verizon camera is higher resolution (although it still sucks) but I wouldnt be surprised if bluetooth transfer was disabled so you had to pay to send your

Verizon is supposedly rolling out LTE (same as GSM providers) in late 2010-2011. But it will require more towers than the EVDO technology so LTE technology will be spotty if it doesn't also include an EVDO chip (which runs into the CDMA/GSM problem).

So it won't exactly be a $ vs $ comparison. Apple will also have many other choices:1) Stick with ATT for full LTE/GSM compatibility in countries without 4th Gen?2) Go with ATT LTE, but have spotty coverage in non-LTE areas around the world and the US? Could hur

but all companies compare to the same time the previous year. This isn't some random metric Apple made up. I'm sure Apple would like to take credit for a making a metric all companies use but they can't.

I already said comparing to a year back is fine, the problem is that no-one seems to wonder why Apple chose that particular number to highlight in their report...

Gee, do you think it might just be because it's the QUARTERLY report. As in the report for the phones sold this QUARTER. And for comparison, you'd probably want to compare against the SAME QUARTER last year. Right? Surely you see that?

We don't WONDER because we KNOW. We all of us understand why you compare like quarterly sales instead of cher

Look at any quarterly sales report from just about any company and you will see a pattern for the quarters, it's almost never a steady anything (rise, loss, flat-line) it's always fluctuating by quarter. That's why it's customary to compare against the same quarter last year, it would be the same part of the fluctuation and would more accurately reflect a rise or fall.

Verizon rejected the iPhone in the beginning, and they will do it again for the same reason: they want control over their network. They don't want to become just a dumb pipe, because then they are a commodity. Apple having complete control over the iPhone sets a dangerous precedent, it was the first time a phone maker had so much control.

From my perspective the commoditization of the networks can't happen soon enough. The network maintainers SHOULD be separated from the service providers, and the service providers should lease the network from the maintainers, like Virgin Mobile does now. This will increase competition, and be the best for the customer. The same thing should happen with internet service.

While the latter half of you post may have merit, it is invalidated by the fact that Verizon never had a chance to reject the iPhone because the iPhone never would have worked in the Verizon network. Different technologies. Apple never seriously considered making a CDMA phone.

Switching from a GSM phone to a CDMA phone is simple, on the software side it's a matter of changing a few low level AT commands, and on the hardware side it's a matter of swapping out the modem. If Apple chooses to do it, they will.

Furthermore, you've done bad research. Not only did Apple consider making a CDMA phone, Verizon completely rejected them [engadget.com]. In essence neither the latter half nor the former half of your post has merit.

How does "Apple may be more likely to work with us once we roll out LTE" invalidate the fact Apple approached Verizon before AT&T? Verizon's VP confirmed they turned Apple down when the two companies couldn't agree on a deal.

phantomfive is exactly correct. Even swapping out the chipsets is relatively straightforward. There are hundreds or thousands of phones that do just that, many from companies smaller than Apple. The hurdle is not technical, as you imply.

This attitude won't last forever. Arguably, it's already over. Verizon has made a lot of concessions on their smart phones. And they know they're bleeding customers to AT&T despite AT&T's crappier network.

It was always my belief that verizon did not want the iPhone because it was not a good fit. Verizon always seemed to me, at least traditionally, to cater to a group of people who did not paying more for cell phone service, and their policies do tend to limit customers, at least in my experiece. It seems that this would be the Apple group, but it really isn't, because Apple does try to reach out to all potential customers, something Verizon has only started recently.

If AT&T can't hold their customers away from Verizon (and all the current customers are locked into 2 year contracts with nasty termination fees) it's because of their crappy service and high rates. If they fixed that then they would need to worry about the competition so much. In fact, competition is exactly their problem - they don't want any!

Indeed. I was on AT&T a year or so ago, when they announced they were prorating the early term fees. I had about 2 months left, my phone was acting up, and th wife wanted verizon because all of her family uses it, so no minutes would be used.

So figuring I'd eat the prorated fees, I called to cancel. The phone support said the pro-rating was for new customers only. Now remember, new users get 30 days to cancel, so why give them prorated fees, and not existing users.
After an hour on th phone with 3 diffe

that has been manipulating the market and the public for years. Sadly, many consumers have bought into an elitist, exclusionary scheme to milk the world, all so a few people can live like kings.

Personally, I believe Apple never would have been successfully in a free and open market. We citizens tragically have let the greedy overrun the ethics and principles that America was built upon and should stand for. Sadly, we've become tools of the overly-affluent and power-mad.

If you do the calculations (insert calculations), AT&T selling a product and related services makes AT&T money. Here's the tricky part. If VERIZON were to sell those *same* products and related services, THEY would be making the money, and not AT&T. Since AT&T considers the amount of money made to be a good indicator of company success, they greatly prefer if people give THEM money, rather than Verizon.

No way will Verizon be willing to give up control over app approval for phones on its network (look at the BREW crap they have on their phones now).No way will Verizon be willing to give up the Verizon music/ringtones/movies/tv/content store for the ITMSNo way will Verizon be willing to allow GPS and other things without taking its cut.

This is why it is extremly important to have at least two players in the market, symbian is not competitor for iPhone, Google may be.(I own a nokia E90, nice hardware, can be better software, extremly expensive....)

On a related matter, just to give you an idea, in Italy, now, I pay 25euros/month to Wind to have350minutes/month, billed by the second, no rx charge, no connection charge (any italian telephone)100SMS each month1Gb month internet bro

Merely suggesting that the same sort of analysis being applied to the iPhone and its impending "demise" was originally applied to the iPod by no less a slashdot personage as CmdrTaco. We all see how that turned out.

Point being, people keep trying to pooh-pooh the various Apple products based strictly on perceptions of technical merit, and they keep being proved utterly and completely wrong.

In Netherland, a T-Mobile iPhone subscription costs EUR 30 per month, which would convert to about US$40.

I would never in my life pay $90 for any phone subscription that doesn't come standard with tethering plus lots of spectacular extras. Many years ago, when UMTS was still new, my UMTS PCMCIA card cost EUR 70 per month. Nowadays it costs about EUR 30 or less.

Any the EUR 30 per month subscription is still profitable enough to pay for much o

If that's really all you want, then the iPhone is obviously not for you. I was never interested in a phone with a camera and tons of other useless gimmicks. I have always been interested in a tiny portable computer, however. And that's exactly what an iPhone is (or would have been, had it not been locked down).